Cost overruns plague N.J. arena deal

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It's not easy to compare the complex deals under which arenas are built, and Pittsburgh's is particularly unusual because of the involvement of gambling money.

But if there's an arena package that most closely resembles the one announced yesterday by the Penguins and elected officials, it's probably the one the New Jersey Devils got. That's both good news and bad news.

In Newark, like Pittsburgh, local tax dollars aren't going into Prudential Center, which is still under construction. The public contribution is capped at $275 million, and it's being covered by the New York-New Jersey Port Authority. That's good news.

The bad news is that the facility blew through initial cost estimates and is now expected to cost around $375 million. There, the team covers the overruns, whereas here the state is on the hook for up to $10 million in unforeseen costs.

Newark's experience suggests that the state could end up having to make good on that, said sports finance consultant Marc Ganis, who worked as a consultant to team owners on the Devils deal. In the Penguins' arena arrangement, the state and the team split any costs above $290 million but below $310 million, after which the team is responsible.

"If there was an over-and-under [betting line] on the $310 million, I would take the over," Mr. Ganis said yesterday.

Each recent arena deal is unique, said National Hockey League Commissioner Gary Bettman. They're "very complicated, with lots of issues, lots of parties interested."

For instance, in Columbus, Ohio, neither the team nor the public had to pay arena construction costs. Nationwide Insurance and the publisher of the Columbus Dispatch newspaper covered the bill.

But the city granted a tax abatement to what would otherwise be a taxable facility, and borrowed money for roads and other infrastructure. The team makes an undisclosed rent payment to the building's private owners.

At the other extreme is Dallas, where the public and two teams made similar payments on a $420 million facility.

The Penguins deal "is probably the best that the public sector could've gotten, and it's probably close to the best the team could've gotten," said Mr. Ganis.

How could both the team and the public get a decent deal?

The unique feature here is the coming of slot machine gambling, and the agreement by PITG Gaming LLC to contribute $7.5 million a year from the take on a planned North Shore casino.

That's nearly 40 percent of the annual debt payment that neither the team nor the taxpayers have to cover.

"You have this third party that you can shove some costs off on," said Neil deMause, co-author of "Field of Schemes," a book that questions the public financing of stadiums.

The Penguins' share of 20 percent of annual debt service is "fairly standard for a lot of these deals, which doesn't necessarily mean it's good," he said.

Given an aggressive timetable, which could have the arena open in the fall of 2009, it could be hard to keep costs below the hoped-for $290 million, he said.

And, though the city isn't contributing tax dollars to the new arena's construction, it would have to pay the Penguins if the amusement tax were raised during the planned 30-year term of the team's lease.

A clause in the agreement says that if the city raises its 5 percent amusement tax on ticket prices it has to ensure that the team's payment doesn't increase.

The city and related agencies also may be involved in covering infrastructure costs, Mayor Luke Ravenstahl said. But much of the bill for roads and other improvements could be covered by payments the team will make for land around the new arena, which it will be encouraged to develop.